NEW YORK—An internal memo from bankrupt broker-dealer MF Global suggested that former CEO Jon Corzine gave “direct instructions” to transfer $200 million to fund an overdrawn account.
The memo, from Assistant Treasurer Edith O’Brien, said that the transfer of $200 million from client accounts was “Per JC’s direct instructions.” The email was dated Oct. 28, 2011, three days before the New York-based MF Global filed for bankruptcy protection.
The memo was part of subpoenaed documents provided to congressional investigators.
The $200 million was moved from a customer account—which should be protected from regulators and the industry’s self-regulator according to guidelines—to an MF Global account with J.P. Morgan, a unit of JPMorgan Chase & Co.
As MF Global’s financial situation deteriorated in late October, JP Morgan and other brokers had decreased the company’s intra-day credit line and asked for additional collateral.
By law, customer accounts must be segregated from the firm’s own accounts to protect investors in case the broker-dealer fails.
The firm filed for bankruptcy on Oct. 31, 2011, mainly due to financial difficulties after its ill-conceived bet on European sovereign debt bonds, especially those from Italy. So far, according to the firm’s bankruptcy trustees, around $1.6 billion in money from customer-segregated accounts is missing. The missing funds raised doubts about what had occurred during the last few days at the firm and what its then-CEO, Corzine, knew about the funds.
O’Brien, who wrote the email mentioned above, along with two other MF Global executives, Christine Serwinski and Laurie Ferber, will testify in front of the House Financial Services Committee on Wednesday.
Henri Steenkamp, MF Global’s former CFO, will also testify, along with an unidentified representative from J.P. Morgan who will elaborate its role in the transfer.
Corzine Denies Knowledge
Corzine testified in front of a House panel in December 2011, where he explicitly stated that he did not authorize any improper transfer of funds from customer accounts.
“I never gave any instruction to misuse customer funds, I never intended anyone at MF Global to misuse customer funds, and I don’t believe that anything I said could reasonably have been interpreted as an instruction to misuse customer funds,” he said at the testimony last year.
It remains to be seen how that statement reconciles with the internal emails from the company’s Treasury department. Corzine may have given instructions to fund the JPMorgan account overdraft but did not say where those funds would come from, and it is unclear whether Corzine knew that the money used to fund the overdraft came from customers’ money.
Lawmakers have already heard accounts from MF Global’s customers, including many farmers and small-business owners. Farmers typically use products from MF Global—such as commodity futures—to hedge against volatility and price swings from commodities such as corn, wheat, and oil.
Corzine was the former Democratic governor of New Jersey, as well as a former CEO of investment bank Goldman Sachs Group Inc.